After hard year, American Eagle Outfitters seeks focus

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American Eagle Outfitters Inc.'s new CEO Robert Hanson has only been on the job for a little more than a month, but the investment community is primed.

Mr. Hanson told analysts on a conference call Wednesday that he wants to tighten up inventories, refocus the South Side teen retailer's intimates line and develop strategies for new revenue streams from the well-known brand.

"It's all encouraging, so we'll look forward to hearing more," analyst Jeff Black from Citigroup told the former Levi's executive.

First, though, company officials had to go over in detail the rather dismal results from 2011 that they had warned about back in January.

Although fourth quarter sales rose 14 percent to break the $1 billion mark, profits didn't look good. Net income of $51.2 million, or 26 cents per share, plunged from $87 million, or 44 cents per share, in the same quarter a year earlier. Factoring out certain one-time expenses, earnings per share in the three months ended Jan. 28 would have been 35 cents.

Teens didn't dislike American Eagle's fashions but, with all the competition out there in the holiday season, the retailer was forced to offer promotions and markdowns. High cotton prices were also a factor.

During the quarter, the company recorded $21 million in asset impairment charges mainly related to about 50 aerie intimates stores that are underperforming. Officials said they will be evaluating whether or not to close those locations.

Jefferies analyst Randal J. Konik summed it all up in an investment note, saying, "Fourth quarter was forgettable with margins down and inventories high. However, that is in the past and we now look to the future."

For the full fiscal year, American Eagle's profit looked a little better at $151.7 million, or 78 cents per share, as compared to $140.6 million, or 70 cents per share, a year earlier. Total sales rose 6 percent to $3.16 billion.

Still, "What a year to forget," wrote Mr. Konik. "At AEO, 2011 marked a year of poor inventory control, bad margins and earnings declines. There is not much else to say here."

Mr. Hanson said he's confident of the potential at American Eagle, which has been a coveted teen brand for years, but he declined to lay out long-term strategic plans until later this year. "I clearly recognize the challenges of the last several years," he said, noting in particular stalled sales and profit margin issues.

American Eagle, which has around 1,000 stores and more than 6 million fans on social media site Facebook, grew its customer database in the fourth quarter. Although it could close 20 to 30 American Eagle stores this year, the company plans to open 15 new locations, with a particular emphasis on outlet centers.

Officials said February sales got the spring quarter off to a solid start, although they remain cautious since the important spring break season and Easter are still ahead. American Eagle is projecting quarterly earnings in the range of 8 to 10 cents, in line with analysts' expectations as calculated by Thomson Financial.

American Eagle shares rose more than 6 percent in trading Wednesday, closing at $15.54, up 92 cents.

First Published 2012-03-07 23:32:03

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